The Sources of Wage Growth in a Developing Country

Ioana Marinescu, University of Chicago
Margaret Triyana, Stanford University

What are the sources of wage growth in developing countries? In the US, general labor market experience is the key source of wage growth, with job seniority playing a smaller role. By contrast, in Indonesia, the 10-year return to seniority is 21 to 29%, which is higher than the return to experience. Furthermore, we estimate a 36% return to ten years of tenure in the formal sector, with no significant return to tenure in the informal sector. Sources of wage growth in Indonesia are different from those in the US, and may be related to Indonesia’s lower level of development.